This study analyzes price-volume relation for Taiwanese listed firms thatare added to or deleted from the MSCI free indices in the sampling periodfrom May 17, 1999 to May 21, 2001. Additions to the indices found a positiveabnormal return of 3.9% in the run-up window from the announcement day upto one day before the change was implemented. This was followed by asignificant reversal on the change day. The deleted firms exhibit an evenstronger announcement effect, with a significant abnormal return of-9.1% in the run-up, followed by a reversal of 1.6% on the changeday. Even when reversals occurred on the change day, the abnormal returns inthe post-announcement window are positive for additions and negative fordeletions. The results support the price-pressure and long-rundownward-sloping-demand hypothesis and are inconsistent with the efficientmarket hypothesis. The abnormal trading volume for deletions is negativefollowing the announcement, contradicting the findings of Lynch andMendenhall (1997). This difference is due to the innate of the Taiwanese stock market, in which no dedicated market makers accommodateblock trading. Moreover, the regression results confirm a positivevolume-return relation before and a negative relation on and after thechange day. Finally, the QFII net buy (sell) the added (deleted) stocks upto ten days after the change was implemented, while the SecuritiesInvestment Trusts and Securities dealers, having a shorter frame net, buythe added stocks up to two days after the effective change. Individualinvestors reversing position on the change day are responsible for the pricereversal on the change day.
Review of Pacific Basin Financial Markets and Policies – World Scientific Publishing Company
Published: Dec 1, 2004
Keywords: MSCI composition changes QFII
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